Feds Confirm Defendants’ Cooperation In Erie, Pa. Health Care Fraud Case

Of the 21 defendants indicted in the case, some are cooperating with the government, with more cooperation anticipated.

"It is highly unlikely that all 21 defendants will proceed to trial," Assistant U.S. Attorney Christian Trabold said in a written document filed in U.S. District Court in Erie on Friday. "Numerous defendants have already begun to cooperate. More are expected to well before a trial date is set."

Trabold, the lead federal prosecutor in Erie, filed the document eight days after he said at a court hearing that a "number" of defendants in the case were cooperating, signaling that possible plea deals are on the way.

He filed Friday's document to supplement the points he made at the hearing, at which three of the 21 defendants argued that they should stand trial separately rather than with all the other defendants.

As he did at the hearing, on March 10, Trabold in the written supplement countered the defense's argument that a trial with 21 defendants would be too unwieldy and thus unfair to the three defendants. Trabold said any trial would not be that large due to the cooperation of some of the codefendants.

The U.S. Attorney's Office could call cooperating defendants as witnesses at trial, Trabold also said in the supplement. He did not state how many defendants are cooperating to date, and he has declined to comment beyond what he has said in court or in court filings.

"The defense will have an opportunity to cross-examine any cooperating codefendants who testify, thereby giving each defendant proceeding to trial a full and fair opportunity to confront them," Trabold said in the written supplement.

Though cooperating defendants are likely to be part of the government's case, Trabold in the supplement said he also will rely on billing records and other documents, such as emails.

"The medical documentation, and other records such as incriminating emails, will bear the names of specific defendants and thus be easily sorted by defendant," Trabold said in the supplement. "This is not a case involving recorded conversations ... but rather a document intensive investigation easily traceable to specific defendants."

Judge to rule on severance requests

U.S. District Judge Susan Paradise Baxter held the March 10 hearing and asked for the filing of the written supplements as she decides whether to grant the requests for severances for the three defendants, who are all physical therapists: Austin J. Dudenhoefer, Julia A. Johnson and Bobby Lee Rainey.

The three are also asking that their trials occur more quickly than any joint trial, which is at least six months to a year away from starting, according to statements said in court. No trial dates have been set in the case, one of the largest prosecutions of white-collar crime in Erie, based on the number of defendants and what the government alleges is the monetary amount of the fraud.

All 21 defendants in the case have pleaded not guilty. They are Hertel & Brown as a corporation; the business' founders and co-owners, Aaron W. Hertel and Michael R. Brown; and 18 Hertel & Brown employees, including the three who are asking for separate trials. All 20 individual defendants are free on unsecured bonds of $10,000.

A federal grand jury on Nov. 9 indicted all 21 defendants on two felony counts: health care fraud and criminal conspiracy to commit wire fraud and health care fraud. The defendants are accused of conspiring to defraud Medicare, Medicaid and private insurers of at least $22 million through unlawful billing practices for 14 years, starting shortly after Hertel & Brown launched in January 2007 and ending this past October.

Trabold is arguing that the conspiracy count ties together all the defendants for a joint trial. Baxter at the March 10 hearing said she was skeptical that the law allows her to grant separate trials under the circumstances of the case, including the conspiracy count.

Hertel & Brown, as the business, and Hertel and Brown and the other individual defendants are accused of billing for services performed by unlicensed technicians and aides as if that work had been performed by licensed physical therapists or physical therapy assistants. The defendants are also accused of overbilling in other areas.

Of the other 18 individual defendants, 17 are either licensed physical therapists or licensed physical therapy assistants, according to the indictment. A billing specialist at Hertel & Brown was also indicted.

Hertel & Brown remains in business at what had been its main location, in the West Erie Plaza in Millcreek Township. At its height, the business operated five offices.

It closed three of its satellite offices — in Fairview, Harborcreek and Summit townships — since the indictment was returned. It closed another office, in Warren County, in May, three months after the federal investigation of Hertel & Brown became public when the FBI and other law enforcement agencies searched its offices on Feb. 23, 2021.

'Unemployable in his profession'

Of the three defendants who are seeking separate trials, only Dudenhoefer filed a written supplement in support of his lawyer's arguments in court on March 10. The deadline for filing the supplements was Friday. As he did in court, the lawyer, Christopher Capozzi, of Pittsburgh, said in the supplement that Dudenhoefer wants a speedy trial partly so he can restore his reputation as quickly as possible and find work.

Dudenhoefer had worked at Hertel & Brown's Summit Township office and has been out of work since that office closed earlier this year, according to court filings. Insurance companies are refusing to reimburse for the services of Dudenhoefer and other physical therapists indicted in the case, adding to their financial woes, according to the records.

"Mr. Dudenhoefer is now unemployed and ... is unemployable in his profession because of this case," Capozzi said in the supplement for Dudenhoefer. "In other words, he is being deprived of fundamental constitutional and human rights, the rights to pursue property and work in a field in which he is eminently qualified. These are rights which the policy underlying the speedy trial clause protects."

In response, Trabold in his supplement said Dudenhoefer's concerns about employment are not enough to warrant a separate trial. He addressed similar concerns from Johnson and Rainey, the other defendants who want separate trials.

"Any impact on Dudenhoefer's or the other two defendants' current employment prospects is irrelevant," Trabold said. "Dudenhofer's argument would result in every defendant being entitled to a severance because negative impact on employment is nearly universal for indicted defendants."

Contact Ed Palattella at [email protected]. Follow him on Twitter @ETNpalattella.